Marginal utility theory predicts that
A) when the price of a good rises, the quantity demanded of that good decreases.
B) if the price of one good rises, the demand for a substitute good increases.
C) if income increases, the demand for a normal good increases.
D) All of the above answers are correct because all are predictions of marginal utility theory.
D
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If labor supply is increasing in the real wage, then
A) the substitution effect is larger than the income effect. B) the income effect is larger than the substitution effect. C) the production function is increasing in labor. D) the marginal product of labor is decreasing.
Assume the government decides to reduce spending in order to reduce the budget deficit, which it financed by borrowing in the real credit market. What is the first round effect on the value of the domestic currency, if there is low mobility in the international capital markets?
a. The value of the currency rises. b. The value of the currency falls. c. The value of the currency is unaffected. d. The change in the value of the currency is ambiguous.